Shockingly, Hedge Fund That Promised No Losses Is Charged For Fraud

Joseph A. Meyer, Jr., and his Statim Holdings, Inc. offered investors in its Arjun private fund that investors would not lose money. The catch is that you can’t redeem from the fund for ten years or you forfeit 1/2 of your capital.

Of course the real catch is that Meyer a fraud. (At least according to the SEC and Georgia Secretary of State.)

According to the SEC complaint, Meyer created an Incentive Allocation on the books of Arjun. In profitable months, the Incentive Allocation would be a payable from Arjun to Statim. In unprofitable months, it would be a receivable due from Statim to Arjun. That allowed the Arjun NAV to remain stable.

Unfortunately, the fund documents only provide for a management fee. There is no disclosure of a performance fee.

The fund documents allowed LPs to borrow against their account. According to the SEC complaint, Meyer was in control of his father-in-law’s account and took a $4.3 million loan to pay down that incentive allocation receivable.

Arjun touted good results. But you can guess that they were not true. In 2015 and 2016, Meyer told prospective and existing investors that Arjun was mostly invested in US Treasury bonds. It hadn’t owned any treasury bonds since 2013.

In 2015, Arjun touted a 11.5% return. It actually had a loss of 7.7%.

If you look at the private fund reporting section of Statim’s Form ADV, you can see that Arjun was audited by Rubio CPA, PC, but the audited financial statements are not distributed to its investors. The Arjun fund agreement was amended in 2009 when the class structure was created and removed the requirement to deliver audited financial statements to investors.

The Custody Rule doesn’t care whether your fund documents require you to deliver audited financial statements. The LPs may not make you, but the SEC does. That’s there to protect investors against actions like this.

Sources:

• SEC Charges Atlanta Investment Adviser with Defrauding a Private Fund and Its Investors
• Statim Holdings Form ADV
• Do Not Swim by Phil Huber in Bps and Pieces
• Spot the Red Flags by Ben Carlson in A Wealth of Common Sense
• “A Spreadsheet That Did The Calculations” Secret To Hedge Fund Manager’s Success by Beth Levin in Dealbreaker
• How Does This Hedge-Fund Manager Make So Much Money? by Simone Foxman and Margaret Newkirk in Bloomberg